I've divested from Pinnacle (ASX:PNI) and invested in Microequities Asset Management (ASX:MAM). While there's nothing inherently wrong with Pinnacle, I dont want excessive exposure to fund managers. I believe MAM offers a superior risk-reward balance. Currently, Pinnacle trades at a 23x PE with a 3.9% yield, whereas MAM stands at 12x PE with a 6% yield, based on suppressed earnings. Assuming that Funds Under Management (FUM) and client numbers remain consistent, as they did in the last fiscal year, I'm optimistic that we're nearing a bottom for the share price. Notably, MAM did not secure significant performance fees in the last fiscal year. However, should there be an uptick in the performance of small and microcaps, MAM could witness a substantial surge in earnings due to performance fees. This could lead to a decrease in its PE multiple, while significantly boosting its yield. I'm impressed with Carlos's consistent performance and resonate with his investment approach and philosophy.

What to keep an eye on is the FUM and client numbers. If these start to drop off then I will reassess thesis. 

This could also be a pain trade, who knows what will happen with the market in the short term. But at some point the small and microcaps will have a run. I believe the current risk-reward scenario favors my position, but only time will confirm this.

Results out this morning and no surprise that there is negligible Performance fee income for 22/23.

• FUM up by 7% (presumably mostly market value increase)
• Slight decrease in customer numbers

I still think it is quite an interesting proposition, seems like there isnt much love for investment managers more broadly but with minimal performance fee contribution the result is a p/e of just under 14, Is it fair to consider that a baseline which you can add both growth in FUM and decent hit rate of performance fee to?

Held IRL

Looking for Pre IPO ideas, read on. This is the newsletter from Pie Funds and some of the companies they have brought into which should IPO sometime in the near future. I think Complexica could become a market darling being a profitable SAAS business. Copy link below for the full report.

https://microequities.com.au/wp-content/uploads/2021/12/BIPO-Investor-Update-12-2021.pdf?utm_medium=email&utm_campaign=Portfolio%20Update%20-%20Private%20to%20Beyond%20the%20IPO%20Fund&utm_content=Portfolio%20Update%20-%20Private%20to%20Beyond%20the%20IPO%20Fund+CID_6eac8942584bf60657568adad1547755&utm_source=email%20marketing%20tool&utm_term=DECEMBER%202021%20QUARTERLY%20REPORT

December Quarter

Fellow investors,

The December quarter was an exciting quarter for the Fund, with our first IPO in Xpon Technologies, four new private investments and two follow-on investments.

Our portfolio now includes nine private investments, of which five investments were sourced directly from Microequities network and wholesale investors.

We also commenced building our listed investment portfolio with an investment in a high quality business that is currently significantly undervalued by the market and has strong growth prospects.

The Fund is expected to return 5.4%1 (net of fees) for the quarter ending December 2021. This performance was driven by a revaluation of our largest investment, Complexica, following a secondary transaction with a third-party at a 21% premium to our investment price. In addition, our investment in Xpon Technologies was re-valued up by

Key Portfolio Developments

During the quarter we invested in Instantscripts, Medical First Group, OpusXenta and Padua. In addition, we made a further investment in Complexica and followed-on from our pre-IPO investment in Xpon Technologies with an additional investment in the IPO.

Some of the highlights across the portfolio include a strategic investment by Flinders Port Holdings (FPH) in Complexica. This investment and collaboration with FPH will enable Complexica to pursue the development of next-generation software applications for ports globally.

In addition, InstantScripts was ranked #2 on The Australian Financial Review Fast Starters list 2021 and the No #1 SmartCompany for 2021.

Investment Pipeline

We are currently reviewing a strong pipeline of quality opportunities and expect to complete several investments in the next quarter. We look forward to detailing these and other developments across the portfolio in our next quarterly update.

We recognise that our investors have an extensive network and experience across a vast number of industries that could provide a valuable source of deal flow. To the extent that there is a business that you believe could be an appropriate investment for the Fund, please reach out to us using the contact details on the last page of this document.

Fund Currently Soft Closed

The Fund is currently soft closed and is expected to reopen once it is 80% invested. We expect to reopen the Fund in February 2022. Current unit holders will receive entitlement rights to participate. Those who are not currently unit holders of the Fund are encouraged to submit a form and deposit to ensure a spot once the Fund is reopened (click below).

A significant jump ~10% in the MAM share price on higher than normal volume. No news on the ASX?

Great meeting today. Thank you Andrew. As a holder it helped reinforce my conviction in my holding and actually I even added to my iRL holding. I recommend those considering a managed fund focusing profitable companies on the smaller end of town take the time and listen to todays MAM meeting with CEO Carlos Gil.

FY22 results in.

During challenging microcap conditions, performance fee income increased by 8%, client numbers increased by 25% and recurring revenue (management fees) increased by 39% [all compared to previous year].

Latest investor update indicated that some of the companies invested in the flagship fund are subject to takeover. If they all are successfully taken over it will free up around 25% of the invested capital in that fund to be invested in other opportunities during favourable investing conditions (after the recent drawdown).

Final fully franked dividend of 2 cents.

As an investor I'm excited to hold this as the largest position in my portfolio at ~25% as the company grows.

Interestingly the performance of their funds appears to have been hammered to the tune of -137% [compared to last year] but an increase of 25% in client numbers ( increasing by 191 clients) saw FUM grow by 7%!

Article in the AFR this morning

Microequities Asset Management captured $200k in JobKeeper

It's likely behind the paywall so ...

Of course, you don’t waste $40 billion without spreading that cash far and wide.

And ASIC’s recent requirement for listed companies to strip out and disclose their JobKeeper claims to the market has drawn all sorts of new beneficiaries to our notice.

Take boutique fund manager Microequities Asset Management, whose tagline is “capturing value, delivering returns”. A promise it wholly fulfilled through its engagement with the JobKeeper program, the details of which it posted on Monday.

The Carlos Gil-headed fund manager claimed $208,500 in JobKeeper across FY20 and FY21 for 11 of its staff. Meaning it must have forecast a 30 per cent revenue decline in both years. Funny: we wouldn’t have figured fund managers unduly hampered by lockdowns.

We also thought fund managers were paid to bet on the future, but thankfully for MAM’s shareholders, its dire fears never came to pass. During the first half of 2021 (when JobKeeper was still being paid), it reported a “surge in operating profit” off “strong investment performance”. While the previous financial year (incorporating JobKeeper’s first iteration), showed net profit surged by 32 per cent.

MAM did not repay a single cent of JobKeeper. Which is what it says on the tin: you don’t “capture value” by giving it back.

Microequities have announced a record profit of $13.6m for the four months July to October. Its a great result and when their Pre IPO fund starts to generate returns it should bolster these numbers more in the future. Held in my personal portfolio.

ASX Announcement

Market Announcements Office

ASX Limited

20 Bridge Street

Sydney NSW 2000 2 NOVEMBER 2021

MARKET UPDATE – STRONG TRADING PERFOMANCE IN OCTOBER

Microequities Asset Management Group Limited (Microequities or the Company) (ASX:MAM) wishes to provide the following financial update.

A resurgence of M&A activity within our investment funds delivered strong absolute and relative outperformance for the month of October. This strong investment performance boosted our October operating profit from investment management* to approximately $4.8m and the 1H22 year to date operating profit (totalling four operating months) from investment management to approximately $13.6m (based on unaudited management accounts), compared to the half year 1H21 operating of $5.4m (the six month period to 31 December 2020). These figures include a dominant component of income generated from performance fees which are volatile, unpredictable, and non-recurring in nature.

Importantly the investment management team continues to see material undervaluation gaps within many investee constituents within our managed funds, providing potential future wealth creation for our clients.

This announcement has been authorised for release by the Board

* Operating profit from investment management excludes share based payments and revaluation of investments held on the balance sheet.

MAM pulling the trigger yesterday and actually using the buyback for the first time. 78k of shares at 93c.

Good signal to go along with director making meaningful purchases last month.

Last year MAM had a Record operating profit of 17.2m, Todays update shows they have just done 13.6m in the first 4 months.

Enterprise value likely just a touch over 100mil currently… How cheap would you like it? I doubled my holding in my real portfolio during the month at 90c and it currently my largest holding by some margin.

To think people on twitter are getting into heated debates of late about what’s a better buy MFG or GQG when this thing is staring them in the face absolutely printing cash. Haha.

Announcement of the continuation of their buyback and director buying this week is a vote of confidence that the board continue to believe that the business is undervalued. 

I believe that their Pre IPO growth fund is going to do exceptionally well and have invested in it personally. Its a unique product in the market place and MAM will do very well out of it with performance fees if they are as successful as I beleive they will be. 

So 2020 was a record year for MAM with operating profit of 16.9mil They just announcend this morning that they have done nearly half that (8.2m) in the first 2 months!

Sometimes the market gives you a gift, MAM has sure felt like a gift to me. Picked up some more this morning.

MAM 80c wall that sat their for weeks and was likely old IPO holders is now officially gone.

Time test my theory, Which is I don't think there will be too much resistance from sellers now and when the company realses a bumper report due any day along with a boost in dividends and solid August update it will be a quick rerate higher.

In addition to my MAM bull case straw earlier, there may be some interesting psychology at play here as well.

There is a wall of stale liquidity at 80c which has been there since last week. Meaning who ever placed the sell orders has not adjusted it and likely may not have even read this morning’s update.

80c is a round number which is a magnet for liquidity, but more importantly it is the IPO price. People love the old adage I will sell as soon as I recover my money. Well for a lot of the investors underwater in this one that is at 80c.

I think once todays announcement is digested by the market, that 80c level will get taken out and it could face very little resistance after that and cruise higher.

I bought this on Strawman last week but didn’t post a straw as I was still trying to pick up as many as I possibly could!

Today’s update confirms a lot of what I was expecting. FUM growing to 550mil and a very strong June result. They are in great shape here and look very cheap IMO. Here are my notes from when I was buying last week.

Microequities Asset Management Group Limited (MAM) is a boutique value driven Fund manager specialising in micro and small caps I have followed their funds for years and they are good stock pickers IMO.

Not to be mistake with buying a fund or LIC, this is a fund management business where you share in the profits created by the management fees.

-Stable annual revenues of ~1.6% of total FUM from management fees.
-Lumpy revenue from performance fees.
-expenses are fairly steady and should represent a smaller percentage as FUM continues to grow.

Fees are accrued at the end of each month. 

They do not use an equity benchmark hurdle for the majority of their funds but rather an absolute benchmark of 5% p/a. 

This is a very soft benchmark that should generate meaningful performance fees. 

Essentially their hurdle is 0.42% per month. Any performance above that and they receive approximately 18.2% in fees providing the fund in question is making a New High-Water mark.

Performance fees are lumpy in nature, but if you smoothed them out over a 5–10-year timeframe, I would estimate the expected value of the revenue generated by performance fees each year to be about 1.7% of FUM. Looking at it this way and adding the expected value of the two revenue streams it starts to look cheap on a variety of multiples.

June was almost certainly a bumper month for performance and all 4 of their funds are currently making new highs meaning every dollar of outperformance will accrue performance fees at the moment. Buying now offers a high probability of locking in further immediate revenue from performance fees in the coming months.

Coming News Flow and Potential Catalysts

-Of their ~500m FUM approximately 150mil can be tracked via their public holdings. In June that 150m generated ~19.5mil in profit and should provide ~$3.5mil boost in performance fees generated. 

-I expect they will make an ASX announcement in early Aug regarding the bumper June month and performance fees.

-I expect their new Private Equity Fund (due on Aug 1 and targeting 50m FUM) will launch successfully taking total FUM to ~550m

-Annual report will confirm a huge year of 17.2mil Operating PBT (already known by the market, but the stock is underfollowed and it may catch the attention of new potential investors)

-Significant Cash on balance sheet since the previous dividend should see a decent boost in Fully Franked dividends.

-Fund inflows continue to improve – In an ASX announcement May 4th They said they were already seeing early success of a reshaped marketing and sales approach.

-Since May 4th All their funds have been doing well. The Global fund in particular which has been crushing it, is still small and has plenty of room and capacity for inflows and increased FUM. Fund Inflows can lag by a number of months as the performance results filter through to rating agencies and investors. 

-They mentioned more growth initiatives for FY22 in a previous update.

-All funds are currently making or near their highs, meaning any outperformance will go straight to the bottom line.

Relative Valuation.

IPO in May 2018 at 80c you were getting 100mil EV and 440m FUM (23% Ev to FUM) 

Currently at 75c you are getting an EV of around ~82m and ~550m FUM (15%) 
*allows for 50mil in new PE fund.

It is currently significantly cheaper than at its IPO, has a huge pipeline of positive news coming and a high probability of further immediate performance fees.

Risks

It is an equity funds management business, so it is a leveraged play on the market. The biggest risk to the SP is a significant bear market. I am not in the business of pretending I can predict when that will happen, so I just focus on buying them when they look very great value. Which I believe is right now. 

Liquidity is tricky if you want to sit on the bid, but is there if you pay up. I built my position at an av price of ~0.77